The Madoff Medicare Ponzi Scheme
With all the recent attention on Healthcare Reform, it may be appropriate to consider the worst healthcare problem the country faces and think about unanticipated consequences. Medicare will surely bankrupt the American economy! Just like the Ponzi scheme reinvented by Bernie Madoff, Medicare makes promises for future returns on today’s “investments” that it can’t possibly keep. “By paying the Medicare tax today to support the medical costs of today’s retirees, your medical costs will be covered when you retire.” This is eerily similar to Bernie Madoff’s promise that new investors would get the same returns in the future as previous investors, while all the time he was using the new investors’ money to pay the returns to previous investors. The Medicare system is different since it uses the money from those paying taxes today to pay the benefits of those who paid in the past, with the promise that those paying today will get their benefits in the future — oh actually this is the same. The only difference between the two is the size: Madoff had a $50 billion Ponzi scheme while the Medicare scheme is at least $80 trillion!
While the Medicare proposition sounds compelling, here is the problem: the current Medicare liability is more than $80 trillion and the entire US economy is only $15 trillion. The Medicare liability is five times more than the entire US economy! There is no reasonable amount of future Medicare tax that will pay for this liability. Some experts estimate that it might require a Medicare payroll tax of 30% in the future on top of income taxes, bringing the average income tax to more than 50%. Medicare will surely bankrupt the American economy. Those paying Medicare taxes today will be stiffed, just like Madoff’s investors, and will not have the healthcare coverage they were promised.
So a few recommendations. First, legislators should consider the future consequences of health care reform decisions. Second, even though the Medicare problem is messy maybe it should be addressed. Or it could be ignored, just like Madoff’s scheme was until it crashed. Madoff went to prison for his Ponzi scheme, will anyone go to prison for perpetuating the Medicare Ponzi scheme? Third, maybe Bernie Madoff’s sentence should be to run Medicare, since he has the experience to keep it going as long as possible.